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FrieslandCampina says milk market has bottomed...

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Milk prices have bottomed out, according to the Dutch dairy co-operative FrieslandCampina, as it forecast a tightening world market.

But the co-operative reported milk production sharply up over the first six months of the year, despite very low prices.

Milk supply for the first six months of 2016 increased by 11.6% to 5.5bn litres.

And Friesland Campina this week increased the prices paid to farmers, despite a push from the EU to disincentivise milk production.

Limited room for a rally

"The milk prices have bottomed out," FrieslandCampina said, forecast falling milk supply in the second half of 2016.

But there is only limited room for a demand driven rally, with buying only likely to see a "modest increase".

"This is due to the limited purchasing power in many oil-exporting countries, political instability in many countries, the limited demand for dairy materials in China and Russia continuing to block the European Union's dairy products," the cooperative said.

Profits, revenues fall

The cooperative reported falling revenues in the first six months of 2015, as lower milk prices and currency headwinds outweighed heavier volumes.

FrieslandCampina's revenues fell by 2.2% year on year, to E5.5bn.

Profits fell by 16.7% year on year, to E160m.

Unclear prospects for Europe

FrieslandCampina was cagey on prospects for European production.

"The effect of the European Commission's measures to reduce milk production in the European Union based on support measures is as yet unclear."

Last month the European Union announced a set of subsidies designed to reduce milk production, by paying farmers for not producing up to 5% of their usual output.

This week, France announced that it would be implementing this scheme, adding extra subsidy from the national budget.

There are already signs that dairy producers in Europe are finally starting to reduce production in the face of lower prices.

According to Eurostat, milk collections in the EU fell sharply in June, falling below the pace of 2015 production for the first time this year.

Milk prices lifted

The company was tight lipped about its own production plans.

"The impact of possible voluntary restriction of production of cooperatives or producer associations are also unclear," Friesland Campina said.

This week FrieslandCampina announced a guaranteed milk price for its producers of E26.25 per 100 kilogrammes, an increase of E1.25 from August.

This is the first time the co-operative has lifted its farmgate price this year.

Lactalis reaches agreement

The price increase from FrieslandCampina was shortly followed by an announcement on Tuesday from Lactalis, the world's largest dairy firm, reached a dealt with producers to raise prices, bringing a week of protests to an end.

Lactalis will pay its producers an average of E275 euros per 1,000 litres of milk for the whole of 2016.

Lactalis will pay 290 euros per 1,000 litres for the milk purchased between August and December of this year.

By Agrimoney.com

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